Official Gold commentary - Insight & Perspective
on the Gold World, together withLINKS TO SOURCES OF GOLD & RELATED
PRICES AND INFORMATION, for professionals use. [Ideal for those starting
out in gold, too.]

Gold is showing a strength that is persistent and solid. The price has been
sitting in the higher $400-teens building a base, it seems. It is telling us
that it is used to the $400s now, having removed the doubts as to whether it
will hold above $400, at least in the short term. There is a distinct impression
that it is looking to assault higher levels of the $400s?

Fund buying last week quietly and in relatively small quantities increased,
still leaving the total long positions well below their January peaks. This
reinforces the impression that there is unlikely to be any heavy fund sell-off.
In addition, it is clear that selling remains at low levels.

What is remarkable and a new feature is the breakout in Euros. It has moved
up well into the Euros $340's now having risen Euros 27 over the last
three weeks. In $ it has only moved $18. The key feature of the gold move has
been attributed, by many, to the $ Euro relationship to date. If gold had
continued to shadow the Euro, it would have dropped to $403 in line with the
falling Euro. So what is driving gold, if not the currencies?

We note that physical demand has dropped away to sluggish levels, in the face
of these prices. The news from G.F.M.S. is a large feature, we believe [below].
But clearly, the noticeable atmosphere of uncertainty in the world, is having
its effect on the markets. With the tendency to put all the precious metals
in the same pot we feel impelled to say that compared to Silver and Platinum,
gold's gains are not so dramatic, but always bear in mind that gold is
driven by different forces and reasons. Also, gold's gains are soundly
based, with a relatively low degree of speculation, at the moment.

The currency instability ruptured the forex markets just before we wrote this
letter. At the time of writing gold stood at $417.90, or Euros 343.27 with
the Euro itself worth $1.2174.

Producers believe that prices will rise!

When we use the term "Producer", we are talking not only about the management
of the mines, but the shareholders in those mines too. Together they represent
a usually well-informed body of people in the gold market. In the years following
the 1999 Washington Agreement, the de-hedging process began. It picked up pace
in the last three years. It is now a well established feature of gold demand.
Many commentators have suggested that this source of demand is set to diminish
substantially. The latest numbers issued by G.F.M.S. tells us that the vigour
attending de-hedging has not diminished, indeed, it continues at levels higher
than last year.

Why is this important, you may well ask? It is not only because of the tonnage
this demand represents but the attitude of the Producers towards the gold price.

The process of de-hedging is essentially to buy back the gold that was previously
sold in the futures market. The purpose of de-hedging is to increase producers
exposure to moves in the spot price of gold. If Producers believe that prices
were either going to fall or to even hold the present levels, it would not
make any sense to de-hedge, whatsoever. That they continue at current levels
to do so clearly indicates they expect higher prices still and want to benefit
from these higher prices, not be penalised by them!

What lies ahead for the de-hedging process and when will the Anglo / Ashanti
deal impact on the market? "Gold-Authentic Money" has more news on the
G.F.M.S. figures released this week and the timing of future de-hedging deals
and just who are de-hedging, including these ones, in its next issue.

Speculative position on Comex

A small increase only was seen in the size of the speculative long positions
to 356.34 tonnes a rise of only14.3 tonnes. Since then there has been a larger
increased which will be confirmed in tomorrows figures.

Gold Producers costs rose 25%

Gold mining companies on average saw cash costs rise 25% in the fourth quarter
of last year, in $ terms, as the dollar fell against 13 of the world's 16 largest
currencies.

• Costs rose to $235 an ounce in the fourth quarter, compared
with $188 in the year-ago period, and $171 in the final quarter of 2001.

• Average costs rose 50% to $295 an ounce in South Africa
during the quarter, from $197 in the year-ago period, reflecting the relentless
rise in the Rand, which does not look at all like falling.

• In Canada, costs rose 13% to $196 an ounce, from $174.

• In Australia, they fell to $219 an ounce, from $219, because
of the inclusion for the first time of producers such as Oxiana Ltd., who produce
their gold in the lower-cost areas of Asia.

• In the U.S., average costs rose 13% as ore grades declined
for some producers such as Barrick Gold Corp., the world's third-biggest gold
producer, according to World Gold.

This would certainly go a long way to explaining the lack of performance on
the part of gold shares versus the gold price! Much of the costs on a mine
in South Africa is generated in the local currency, such as labour. It is estimated
that these account for up to 50% of the costs there.

"Gold - Authentic Money" would be pleased to let you have a
copy of the issue that discusses how to handle currencies in gold share investments
in each of these countries, with your subscribing to this service.

The 2004 Central Bank Gold Agreement

Germany: - German Chancellor Gerhard Schroeder confirmed beyond
a doubt that the Bundesbank would be selling 600tonnes of gold bullion under
the auspices of the revised Central Bank Gold Agreement. The Chancellor reported
to Parliament "I welcome the suggestion by Bundesbank President Welteke
to sell some of the bank's gold reserves. The government will ensure
that the proceeds of the sale will be used for education, research and development".
This removes the problem of where the proceeds of the sale of gold were to
be invested. The law stated that any bullion sale proceeds, had to be used
to fund government debt. "Gold - Authentic Money" has a series
of articles running on the position of the different signatories and others,
on gold sales emanating from the 2004 Central Bank Gold Agreement. In the
present issue we discuss the "Hidden Agenda" of Germany.

France: - The head of the Bank of France, Christian Noyer, rejected
the notion of a debate over a government proposal to sell gold reserves to
raise cash for science research. "This is a debate I don't like very much because
it is a debate which does not exist and cannot exist," Noyer said that gold
reserves, like currency reserves, were listed as assets in the Bank of France's
accounts. They are used as guarantee against money in circulation.

We repeat what we said last week, that, if one does not understand the
issues involved you will not understand the long term gold price. In
a continuation of the series on the "2004 Central Bank Gold Agreement", we
will be examining these issues and all the other issues surrounding the future
of "Official" gold sales, very closely.

Silver

Silver is very vulnerable to a speculative sell-off. We do expect the volatility
to continue at heavy levels. We cannot say when this will happen, as it will
depend on the timings decided upon by the speculators. Because of this it is
also possible that they will drive the price higher too.

At the time of writing Silver was trading at $7.60

Platinum

Platinum is certainly looking at $1,000, but may have to consolidate for a
while before it does. The demand for diesel engines is pushing the car industry
to more platinum, but they are doing their best to stand back from the market
in the hope that prices will fall, first. The question is how long can they
do that?

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